The Freedom of Information Act and the Fed Discount Window

Most of us had never heard of the Federal Reserve Discount Window until the Crash of 2008. Ordinarily, very few banks had to use the access to ready cash that a discount window facility was empowered to loan. There are many reasons for this. One is that it is no easy thing to get a bank to admit to using a discount window facility without giving the impression that bank customers should get their money right out of that bank by yesterday evening. If we analyze this quantitatively, then this effect could be strongly amplified if discount window activity were being tracked in real time. On Twitter.

Of course, it's not. In fact, such knowledge is treated as if it were a trade secret.

But a bank or other financial wold really like to know if you had trouble meeting your cash flow needs. A bank knowing that about you might want to raise its bank-favorable rates when doing future business with you. If it were legal, it might even change its rate on your old business as well. Since we are recently familiar with the Crash of 2008 and may have at least a passing awareness of on-going investigations of banks and other financial institutions in connection with that recent history, we can all decide for ourselves if banks and other financial institutions have done illegal or unethical business practices before.

For the sake of argument, let us assume all banks and financial institutions are honest and ethical until proven guilty or at least liable for unfair business practices amounting to what the California Business and Professions Code seems to include as unfair competition.

It is reasonable to assume that if all banks and financial institutions are honest and ethical, then these institutions would have nothing to hide. When we have nothing to hide, and we are doing business as investor-owned firms in a well-regulated and relatively free marketplace, then all that we do that has a material relationship with what investors need to know about us is fair game for print and other media.

This is why I am very thankful to the Second Circuit Court of Appeals for Monday morning, even more than I might or could be thankful for anything voted on or voted against in Congress this Sunday evening. Monday morning starts the first day of the week when real journalists, those who want to see the real dirt, can file Freedom of Information Act requests on bank transactions at the Fed Discount Window as to the transacting banks, the dates and amounts of those transactions, and the collateral used by banks in those transactions.

Essentially, the Court last week found no statutory or other exemption to requests made under the Freedom of Information Act for the Fed Discount Window, and that if the Fed wanted such an exemption, it needed to seek it specifically from Congress.

Naturally, the Fed is expected to appeal to the Supreme Court. It appears that there is much to hide, and I expect all banks to line up neatly and perfectly behind the Fed on this. After all, hiding behind something appears to be the name of the game here.

I think that whacking the ball into the Legislative Branch side of the net was the proper Judicial Branch call and that the Supreme Court declines to review the Second Circuit decision.